Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

(dollars in thousands)

Forward-Looking Statements

Some of the statements in this Quarterly Report on Form 10-Q, as well as
statements made by us in periodic press releases or other public communications,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Certain, but not necessarily all, of such forward-looking statements
can be identified by the use of forward-looking terminology, such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other comparable terminology. All statements other than of historical facts are
forward-looking statements. Forward-looking statements contained in this
document may include those regarding market trends, NVR's financial position,
business strategy, the outcome of pending litigation, investigations or similar
contingencies, projected plans and objectives of management for future
operations. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results or performance
of NVR to be materially different from future results, performance or
achievements expressed or implied by the forward-looking statements. Such risk
factors include, but are not limited to the following: general economic and
business conditions (on both a national and regional level); interest rate
changes; access to suitable financing by NVR and NVR's customers; increased
regulation in the mortgage banking industry; the ability of our mortgage banking
subsidiary to sell loans it originates into the secondary market; competition;
the availability and cost of land and other raw materials used by NVR in its
homebuilding operations; shortages of labor; weather related slow-downs;
building moratoriums; governmental regulation; fluctuation and volatility of
stock and other financial markets; mortgage financing availability; and other
factors over which NVR has little or no control. NVR undertakes no obligation to
update such forward-looking statements except as required by law. For additional
information regarding risk factors, see Part II, Item 1A of this Quarterly
Report on Form 10-Q and Part I, Item 1A of NVR's Annual Report on Form 10-K for
the fiscal year ended December 31, 2013.

Unless the context otherwise requires, references to "NVR," "we," "us," or "our"
include NVR and its consolidated subsidiaries.

Results of Operations for the Three and Six Months Ended June 30, 2014 and 2013

Overview

Business

Our primary business is the construction and sale of single-family detached
homes, townhomes and condominium buildings, all of which are primarily
constructed on a pre-sold basis. To fully serve customers of our homebuilding
operations, we also operate a mortgage banking and title services business. We
primarily conduct our operations in mature markets. Additionally, we generally
grow our business through market share gains in our existing markets and by
expanding into markets contiguous to our current active markets. Our four
homebuilding reportable segments consist of the following regions:

Mid Atlantic: Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East: New Jersey and eastern Pennsylvania
Mid East: New York, Ohio, western Pennsylvania, Indiana and Illinois
South East: North Carolina, South Carolina, Florida and Tennessee

Our lot acquisition strategy is predicated upon avoiding the financial
requirements and risks associated with direct land ownership and development.
Historically, we generally have not engaged in land development

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to obtain finished lots for use in our homebuilding operations. Instead, we
typically have acquired finished lots at market prices from various third party
land developers pursuant to fixed price purchase agreements. These purchase
agreements require deposits, typically ranging up to 10% of the aggregate
purchase price of the finished lots, in the form of cash or letters of credit
that may be forfeited if we fail to perform under the purchase agreement. This
strategy has allowed us to maximize inventory turnover, which we believe enables
us to minimize market risk and to operate with less capital, thereby enhancing
rates of return on equity and total capital.

Our continued success is contingent upon our ability to control an adequate
supply of finished lots on which to build, and on our developers' ability to
timely deliver finished lots to meet the sales demands of our customers.
However, during the past several years, the impact of economic conditions on the
homebuilding industry negatively impacted our developers' ability to obtain
acquisition and development financing or to raise equity investments to finance
land development activity. As a result, in certain specific strategic
circumstances we deviated from our historical lot acquisition strategy and
engaged in joint venture arrangements with land developers or directly acquired
raw ground already zoned for its intended use for development. Once we acquire
control of any raw ground, we determine whether to sell the raw parcel to a
developer and enter into a fixed price purchase agreement with the developer to
purchase the finished lots, or whether we will hire a developer to develop the
land on our behalf. While joint venture arrangements and direct land development
activity are not our preferred method of acquiring finished building lots, we
may enter into additional transactions in the future on a limited basis where
there exists a compelling strategic or prudent financial reason to do so. We
expect, however, to continue to acquire substantially all our finished lot
inventory using fixed price purchase agreements with forfeitable deposits.

As of June 30, 2014, we controlled approximately 60,900 lots under purchase
agreements with deposits in cash and letters of credit totaling approximately
$306,200 and $2,400, respectively. Included in the number of controlled lots are
approximately 8,000 lots for which we have recorded a contract land deposit
impairment reserve of approximately $55,900 as of June 30, 2014. We also
controlled approximately 5,600 lots through four joint venture limited liability
corporations ("JVs") with an aggregate investment of approximately $85,500.
Further, as of June 30, 2014, we directly owned six separate raw parcels of
land, zoned for their intended use, with a current cost basis, including
development costs, of approximately $63,800 that once fully developed will
result in approximately 1,150 lots. Of the total finished lots expected to be
developed, 125 lots are under contract to be sold to an unrelated party under
lot purchase agreements (see Notes 2, 3 and 4 to the condensed consolidated
financial statements included herein for additional information regarding fixed
price purchase agreements, JVs and land under development, respectively). In
addition, NVR has certain properties under contract with land owners that are
expected to yield approximately 4,900 lots, which are not included in our number
of total lots controlled. Some of these properties may require rezoning or other
approvals to achieve the expected yield. These properties are controlled with
deposits and letters of credit totaling approximately $3,500 and $4,000,
respectively as of June 30, 2014, of which approximately $7,300 is refundable if
NVR does not perform under the contract. NVR generally expects to assign the raw
land contracts to a land developer and simultaneously enter into a lot purchase
agreement with the assignee if the project is determined to be feasible.

In addition to constructing homes primarily on a pre-sold basis and utilizing
what we believe is a conservative lot acquisition strategy, we focus on
obtaining and maintaining a leading market position in each market we serve.
This strategy allows us to gain valuable efficiencies and competitive advantages
in our markets, which we believe contributes to minimizing the adverse effects
of regional economic cycles and provides growth opportunities within these
markets.

Current Business Environment and Key Financial Results

Through the first six months of 2014, the housing markets we serve have
generally seen a flattening in the number of home sales and prices. Slow
economic growth coupled with reduced affordability have been the primary drivers
of the slowdown in the housing recovery. We have experienced a decline in
traffic per community in the first six months of 2014 compared to the same
period in 2013. In addition, new home

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competitors have been increasing the number of communities open for sale, which
has resulted in a decline in sales per community. The housing market also
continues to face challenges from tight mortgage underwriting standards.

Our consolidated revenues for the second quarter of 2014 totaled $1,102,100, a
9% increase from the second quarter of 2013. Our net income and diluted earnings
per share in the current quarter were $68,178 and $15.17, respectively,
increases of 34% and 50%, respectively, compared to the second quarter of 2013.
Diluted earnings per share was favorably impacted by our ongoing share
repurchase program, under which we repurchased 317,739 shares of our stock at an
aggregate purchase price of $347,448 during the first six months of 2014. Our
gross profit margin within our homebuilding business increased to 18.6% in the
second quarter of 2014 compared to 15.9% in the second quarter of 2013. Gross
profit margin in the second quarter of 2013 was negatively impacted by a
previously disclosed service related accrual of approximately $15,600 which
reduced gross profit margin by 157 basis points of revenue. Our new orders, net
of cancellations ("New Orders") and the average sales price for New Orders
increased 4% and 2%, respectively, compared to the second quarter of 2013.

While our gross profit margin improved from year ago levels, we continue to face
gross margin pressure due to increasing land and construction costs. In
addition, increased competition in the mortgage banking industry has resulted in
reduced loan profitability. We believe that continued improvement in the housing
market is dependent upon a sustained overall economic recovery, driven by
continued improvement in job growth and consumer confidence levels as well as
improvement in wage growth and household formation. Due to the strength of our
balance sheet, we believe that we are well positioned to take advantage of
opportunities that may arise from future economic and homebuilding market
volatility.

Homebuilding revenue increased 9% in the second quarter of 2014 compared to the
same period in 2013 primarily as a result of a 7% increase in the average
settlement price and a 2% increase in the number of units settled quarter over
quarter. The increase in the average settlement price was primarily attributable
to the average price of homes in backlog being approximately 7% higher entering
the second quarter of 2014

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compared to the same period in 2013. The higher average price of homes in
backlog entering the second quarter of 2014 was attributable to the improved
market conditions experienced in 2013 which led to increasing prices in 2013 and
into the first quarter of 2014. In addition, beginning backlog was also
favorably impacted by a shift in backlog units to our Mid Atlantic segment which
is our highest priced segment.

Gross profit margin in the second quarter of 2014 increased 265 basis points to
18.6% compared to 15.9% the second quarter of 2013. Gross profit margin in the
second quarter of 2013 was negatively impacted by the aforementioned service
related accrual which reduced gross profit margin by 157 basis points.
Additionally, second quarter 2014 gross profit margin was favorably impacted by
our average settlement price increasing at a higher rate than material and lot
costs quarter over quarter.

Selling, general and administrative ("SG&A") expense in the second quarter of
2014 increased approximately $11,500, or 14%, compared to the second quarter of
2013, and increased as a percentage of revenue to 8.6% from 8.3% quarter over
quarter. SG&A expense increased primarily due to an increase in sales and
marketing expenses and equity-based compensation expense. Sales and marketing
costs increased approximately $5,300 quarter over quarter due to the 9% increase
in the average number of active communities. Equity-based compensation expense
increased approximately $4,900 due primarily to the granting of non-qualified
stock options under the 2014 Equity Incentive Plan (the "2014 Plan"), which was
approved by our shareholders at the May 2014 Annual Meeting (see Note 6 in the
accompanying condensed consolidated financial statements for additional
discussion of equity-based compensation and the 2014 Plan).

The number of New Orders and the average sales price of New Orders increased 4%
and 2%, respectively, in second quarter of 2014 when compared to the second
quarter of 2013. The increase in New Orders was driven by a 9% increase in the
average number of active communities, offset partially by lower absorption rates
quarter over quarter. Although the average sales price of New Orders increased
slightly quarter over quarter, we have seen a leveling off of sales prices from
the first quarter of 2014 through the second quarter.

Consolidated Homebuilding - Six Months Ended June 30, 2014 and 2013

Homebuilding revenue increased 8% for the six months ended June 30, 2014
compared to the same period in 2013 as a result of an 8% increase in the average
settlement price. The increase in the average settlement price was primarily
attributable to an 8% higher average price of homes in backlog entering 2014
compared to 2013. The higher average price of homes in backlog entering 2014 was
attributable to the improved market conditions experienced in 2013.

Gross profit margin in the first six months of 2014 increased to 18.3% compared
to 16.3% in the first six months of 2013. As noted previously, gross profit
margin in the second quarter of 2013 was negatively impacted by a service
related accrual which reduced the 2013 gross profit margin by 89 basis points.
Additionally, 2014 gross profit margin was favorably impacted by our average
settlement prices increasing at a higher rate than material and lot costs year
over year.

SG&A expense in the first six months of 2014 increased approximately $23,700
compared to the first six months of 2013 and increased as a percentage of
revenue to 9.8% from 9.2% year over year. The increase in SG&A expense was
attributable to an approximate $9,100 increase in sales and marketing costs due
to the increase in the average number of active communities, an approximate
$7,700 increase in personnel costs due to an increase in headcount year over
year, and an approximate $7,200 increase in equity-based compensation expense in
2014. Equity-based compensation expense increased due to the aforementioned
non-qualified stock option grants in the second quarter of 2014 under the 2014
Plan and restricted share unit grants in the second quarter of 2013.

The number of New Orders was 1% lower for the first six months of 2014 compared
to the first six months of 2013, while the average sales price of New Orders
increased 5% year over year. New Orders were

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down despite a 10% increase in the average number of active communities year
over year as sales absorption rates were lower in each of our market segments.
Average sales prices were higher in each of our market segments year over year
as a result of favorable market conditions in 2013, which led to increasing
prices entering 2014. The average sales price of New Orders in the current year
was also favorably impacted by a shift in New Orders to our Mid Atlantic and
North East market segments, which have higher average sales prices.

Backlog units and dollars were 6,531 units and $2,443,238, respectively, as of
June 30, 2014 compared to 6,617 units and $2,372,757, respectively, as of
June 30, 2013. Backlog units were lower primarily due to our backlog units being
approximately 1% lower entering 2014 compared to the same period in 2013.
Backlog dollars were favorably impacted by a 5% higher average price of New
Orders for the six month period ended June 30, 2014 compared to the six month
period ended June 30, 2013.

Backlog, which represents homes sold but not yet settled with the customer, may
be impacted by customer cancellations for various reasons that are beyond our
control, such as failure to obtain mortgage financing, inability to sell an
existing home, job loss, or a variety of other reasons. In any period, a portion
of the cancellations that we experience are related to new sales that occurred
during the same period, and a portion are related to sales that occurred in
prior periods and therefore appeared in the beginning backlog for the current
period. Expressed as the total of all cancellations during the period as a
percentage of gross sales during the period, our cancellation rate was
approximately 12.4% and 13.5% in the first six months of 2014 and 2013,
respectively. During the most recent four quarters, approximately 6% of a
reporting quarter's beginning backlog cancelled during the fiscal quarter. We
can provide no assurance that our historical cancellation rates are indicative
of the actual cancellation rates that may occur during the remainder of 2014 or
future years.

The backlog turnover rate is impacted by various factors, including, but not
limited to, changes in New Order activity, internal production capacity,
external subcontractor capacity and other external factors over which we do not
exercise control.

Reportable Segments

Homebuilding profit before tax includes all revenues and income generated from
the sale of homes, less the cost of homes sold, SG&A expenses, and a corporate
capital allocation charge determined at the corporate headquarters. The
corporate capital allocation charge eliminates in consolidation, is based on the
segment's average net assets employed, and is charged using a consistent
methodology in the periods presented. The corporate capital allocation charged
to the operating segment allows the Chief Operating Decision Maker to determine
whether the operating segment's results are providing the desired rate of return
after covering our cost of capital. We record charges on contract land deposits
when we determine that it is probable that recovery of the deposit is impaired.
For segment reporting purposes, impairments on contract land deposits are
generally charged to the operating segment upon the determination to terminate a
finished lot purchase agreement with the developer or to restructure a lot
purchase agreement resulting in the forfeiture of the deposit. We evaluate our
entire net contract land deposit portfolio for impairment each quarter. For
additional information regarding our contract land deposit impairment analysis,
see the Critical Accounting Policies section within this Management Discussion
and Analysis. For presentation purposes below, the contract land deposit reserve
at June 30, 2014 and 2013 has been allocated to each reportable segment for the
respective years to show contract land deposits on a net basis. The net contract
land deposit balances below also include approximately $6,400 and $2,400 at
June 30, 2014 and 2013, respectively, of letters of credit issued as deposits in
lieu of cash. The following tables summarize certain homebuilding operating
activity by reportable segment for the three months ended June 30, 2014 and
2013: